Aditya Pugalia - Analyst
Published Date: 16 April 2017
Global equities closed lower as investors paused to reassess the risk of increasing geo-political tensions. Having said that, the positive start to the earnings season and sustained gains in oil prices provided some support.
The MSCI World index dropped -0.7% on the back of weakness across markets. The MSCI G7 index lost -0.9% 5d, the MSCI EM index declined -0.1% 5d while the MSCI Arabian Markets index dropped -0.2% 5d. Volatility spiked across the board with the VIX index (US) and the V2X index (Europe) jumping +28.8% 5d and +23.9% 5d respectively. The JP Morgan EM Volatility index declined -1.2% 5d.
Against an uncertain geo-political landscape, the ongoing Q1 2017 earnings season and the economic data could play a significant part in the short term direction of the markets. Investors will also be watching the result of the referendum in Turkey.
Most regional markets drifted lower even as the earnings season started on a positive note and oil prices continued to gain. The Bloomberg GCC 200 index dropped -0.5% 5d.
UAE bourses closed lower with the DFM index and the ADX index losing -1.6% 5d and -2.1% respectively. The focus of investors remained on the banking sector stocks that were the first ones to report Q1 2017 earnings. Union National Bank added +5.4% 5d after the bank reported Q1 2017 net income of AED 449mn (+0.5% y/y), beating analysts’ estimates of AED 432mn by 4%. Similarly Dubai Islamic Bank gained +1.2% 5d as the bank reported Q1 2017 net profit of AED 1.04bn to beat consensus estimates of AED 938mn by 11%. One common thread across the banking sector results have been the increase in impairments. At Union National Bank impairments increased by 98.8% y/y to AED 169mn while at Dubai Islamic Bank the same grew by 43.2% to AED 169mn.
The Tadawul closed flat for the week helped by renewed investor interest in telecom stocks. Investor sentiment received a further boost from another successful bond issuance by Saudi Arabia. The country raised USD 9bn by issuing two tranches (5 year and 10-year) of sukuk. Zain KSA fuelled the interest after reporting is first ever quarterly profit of SAR 45mn compared to a loss of SAR 250mn a year earlier. The company cited drop in amortization following the extension of license by additional 15 years. The stock closed the week with gains of +11.7%, Etihad Eisalat too rallied +1.3% 5d.
Elsewhere, the EGX 30 index dropped -1.0% 5d amid increase in political tensions. The turnover declined -26.0% w/w while the EGP drifted in a tight range just north of 18.00 level. Global Telecom Holding dropped -5.6% amid speculation that any GDRs that are not taken as local shares as part of the program termination will be hitting the market this week.
Developed market equities drifted lower for a second consecutive week as geo-political risks rose further and as investors reprice the likely delay in fiscal stimulus plan of Donald Trump. Having said that, the decline in equities were muted compared to other asset classes as a positive start to the earnings season provided some support. Eventually, the S&P 500 index, the Euro Stoxx 600 index and the Nikkei index dropped -1.1% 5d, -0.2% 5d and -1.8% 5d respectively.
At the end of last week, 6% of companies in the S&P 500 index had reported Q1 2017 earnings. According to FactSet, 76% of those companies beat the mean EPS estimate and 59% of those beat the mean sales estimate. The blended Q1 2017 earnings growth was 9.2%. If 9.2% growth rate holds then it will mark the highest y/y growth since Q4 2011.
Emerging equities outperformed global equities with the MSCI Emerging Markets index losing -0.1% 5d compared to a decline of -0.7% 5d in the MSCI World index.
The focus this week will remain on the Turkey’s referendum results which are due to come in as early as tomorrow morning. Opinion polls ahead of the actually polling showed that the results was too close to predict. The Borsa Istanbul 100 index closed +1.8% 5d ahead of the event.
US non-farm payrolls beat expectations